I don’t think Canadians realize how valuable a regular meeting with their financial advisor can be. Even if you just visit your bank now and again, you don’t need to pay someone to help you reach your goals. They’re paid by the bank already! That is why you should be using their services as much as possible — especially if you want to retire sooner as opposed to later.
That’s why today I’m going to go over how to turn your $100,000 savings into enough to retire on. It’s going to take several meetings with your financial advisor and a lot of planning. But it’s certainly possible.
Don’t use it all!
Before you think that I’m suggesting you put all $100,000 into a few stocks, think again. You want to consider your investments carefully, which is why meeting with your financial advisor again and again is what you need to do first.
A financial advisor will help you determine exactly how to manage your debts, should you have any, mortgage payments, and an emergency fund. But for the sake of this instance, let’s say your debts are paid and you keep an emergency fund of $30,000.
Even then, I wouldn’t necessarily put all $70,000 into a few stocks! Your financial advisor will then likely tell you some more conservative options that will see your income rise steadily over the next few years.
One dividend stock I’d choose
Again, don’t put your eggs in one basket. But for the purpose of this example, I’m going to use a solid dividend stock just to show how this can turn $70,000 into enough to retire on.
A solid choice would be one of the Big Six banks, with Royal Bank of Canada (TSX:RY) a great choice these days. The company hasn’t fallen as far as the other banks, with plenty of cash coming in from its wealth and commercial management sectors. What’s more, it’s the largest of the Big Six by market cap, with shares down just 3% year to date. You can pick it up trading at a valuable 12.22 times earnings, with a 4.36% dividend yield.
Shares of Royal Bank stock have increased at a compound annual growth rate (CAGR) of 7.53%. Its dividend has increased at a CAGR of 8.2%. So, let’s see what happens when you reinvest that income.
| Year | Share Price | Shares Owned | Annual Dividend Per Share | Annual Dividend | After DRIP Value | Year End Stock Price | New Shares Purchased | Year End Shares Owned | New Balance |
| 1 | $124.50 | 562 | $5.40 | $3,034.80 | $73,003.80 | $149.40 | 20.31 | 582.31 | $76,038.11 |
| 2 | $149.40 | 582.31 | $5.84 | $3,402.32 | $90,399.43 | $160.65 | 21.18 | 603.49 | $93,802.00 |
| 3 | $160.65 | 603.49 | $6.32 | $3,815.21 | $100,765.77 | $172.75 | 22.09 | 625.58 | $104,581.74 |
| 4 | $172.75 | 625.58 | $6.84 | $4,279.16 | $112,346.07 | $185.75 | 23.04 | 648.62 | $116,625.86 |
| 5 | $185.75 | 648.62 | $7.40 | $4,800.57 | $125,284.71 | $199.74 | 24.03 | 672.65 | $130,084.51 |
| 6 | $199.74 | 672.65 | $7.96 | $5,353.30 | $139,709.69 | $214.78 | 24.92 | 697.57 | $145,062.07 |
| 7 | $214.78 | 697.57 | $8.61 | $6,006.86 | $155,832.67 | $230.96 | 26.01 | 723.58 | $161,839.82 |
| 8 | $230.96 | 723.58 | $9.32 | $6,741.76 | $173,856.61 | $248.35 | 27.15 | 750.73 | $180,599.22 |
| 9 | $248.35 | 750.73 | $10.08 | $7,568.29 | $194,009.49 | $267.05 | 28.34 | 779.07 | $201,577.61 |
| 10 | $267.05 | 779.07 | $10.91 | $8,498.02 | $216,546.36 | $287.16 | 29.59 | 808.66 | $225,043.30 |
| 11 | $287.16 | 808.66 | $11.80 | $9,544.09 | $241,755.41 | $310.70 | 30.72 | 839.38 | $251,300.18 |
| 12 | $310.70 | 839.38 | $12.77 | $10,719.01 | $271,516.43 | $334.10 | 32.08 | 871.46 | $282,234.30 |
| 13 | $334.10 | 871.46 | $13.82 | $12,041.23 | $303,194.57 | $359.26 | 33.52 | 904.98 | $315,236.82 |
| 14 | $359.26 | 904.98 | $14.95 | $13,529.74 | $338,649.19 | $386.31 | 35.02 | 940 | $352,177.69 |
| 15 | $386.31 | 940 | $16.18 | $15,205.67 | $378,335.11 | $415.40 | 36.61 | 976.61 | $393,542.80 |
| 16 | $415.40 | 976.61 | $17.50 | $17,093.31 | $422,774.08 | $446.68 | 38.27 | 1014.88 | $439,868.38 |
| 17 | $446.68 | 1014.88 | $18.94 | $19,219.72 | $472,542.55 | $480.31 | 40.02 | 1054.9 | $491,764.60 |
| 18 | $480.31 | 1054.9 | $20.49 | $21,615.78 | $528,295.87 | $516.48 | 41.85 | 1096.75 | $549,910.49 |
| 19 | $516.48 | 1096.75 | $22.17 | $24,316.13 | $590,763.85 | $555.37 | 43.78 | 1140.53 | $615,077.92 |
| 20 | $555.37 | 1140.53 | $23.99 | $27,360.30 | $660,775.60 | $597.19 | 45.82 | 1186.35 | $688,138.78 |
So, after 20 years, put it all together, and your savings could be well over $700,000, which is certainly enough to retire on at this point in time! That’s without contributing year after year and having an emergency fund on hand. Not to mention annual passive income of $27,360.
